If you are considering taking out a student loan, it can be challenging to figure out how to choose a loan and what options are best for your education. While federal and private student loans can be good options for students, it is important to know how much interest you will have to pay.
Federal student loans differ from private student loans, including how their interest rates function. You can read this article on our website to learn how to take out a student loan. Federal student loans have a fixed interest rate, meaning the interest rate will stay the same throughout the loan term. Private student loans offer either fixed or variable interest rates. A variable interest rate means the interest rate can change during the loan term. Make sure that you look carefully at the terms of your loan to see what kind of interest rate you can get.
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For federal student loans, interest rates are usually standardized according to the loan you are taking out. For undergraduate students, an interest rate below 5% is great. For graduate students, a good interest rate may be below 7%.
For private loans, student loan interest rates vary greatly. If you're thinking of taking out a private student loan, it is important to know whether the loans are fixed or variable. If the fixed or variable interest rates stay below 7%, then the loan could be a good option. If you're unsure whether student loans are the best option for you, there are plenty of other options, like private scholarships, that can help you fund your education.
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What is the interest rate on federal student loans?
If your federal loans are eligible, the U.S. Department of Education automatically paused loan payments and set interest rates to 0% starting March 13, 2020. This payment pause continues until until 60 days after President Joe Biden's student debt relief plan is resolved or after June 30, 2023.
If you're still borrowing for your education, the federal student loan interest rate for unsubsidized and subsidized undergraduate loans is 4.99% for the 2022-23 school year. Federal rates for unsubsidized graduate student loans are 6.54%. For Direct Plus Loans, the rate is 7.54%. These rates go into effect on July 1.
What is the interest rate on private student loans?
Private student loan interest rates can sometimes be lower than federal rates, but approval for the lowest rates requires excellent credit. If you have good credit, you may be able to get a lower rate.
The current private student loan default rate is 2%. Private lenders have been trying to lower student interest rates in the past few years. The overall average private student loan interest rate estimates generally range from 6% to 7%.
Among major private lenders, the range of annual percentage rate (APR) is anywhere from 1.04% to 12.99%. These rates depend on whether students have a cosigner and their credit.
What is the average student loan interest rate?
Among all existing borrowers, 5.8% is the average student loan interest rate for federal and private student loans.
The interest rate changes every year for federal student loan rates, but in 2022-2023, it was 4.99% for undergraduate unsubsidized loans. On the other hand, private loans generally have interest rates that average around 6% to 7%.
Frequently asked questions about student loan interest rates
Is 6% interest high for a student loan?
Since the average interest rate for private and federal student loans is 5.8%, 6% interest is just above average. Although there may be student loans with lower interest rates, loans with a 6% interest rate, if it is fixed, could be a great option for students.
Is 13% interest rate high for student loans?
A 13% interest rate is more than double the average, so it is very high. For private loans, the range of APR is anywhere from 1.04% to 12.99%, meaning that 13% is just outside of the range.
Is $30,000 in student loans a lot?
Graduates from the class of 2021 who took out student loans for their bachelor's degree borrowed $29,719 on average. So $30,000 in student loans is around the average amount of loans.
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